Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Trend Forecast 2024 - 15th June 24
Gold Price Consolidating at High - 15th June 24
NVIDIA Stock Market: Price Prediction for the Future - 15th June 24
When Will the Boom/ Bust Rollercoaster End? - 15th June 24
Stock Market Trouble Lies Ahead. Are You Ready For It? - 15th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What Investors Can Learn from Gold Yen Price?

Commodities / Gold and Silver 2016 Nov 26, 2016 - 04:50 PM GMT

By: Arkadiusz_Sieron

Commodities

Our Market Overview would be incomplete without remarks about gold priced in the Japanese yen. Chart 1 shows nominal gold prices denominated both in the U.S. dollar and the Japanese currency, while Chart 2 plots the indices of gold prices in these two currencies.

Chart 1: The price of gold in U.S. dollars (yellow line, right axis) and in Japanese yen (red line, left axis) from January 1979 to September 2016.


Chart 2: Indices of gold prices in the U.S. dollar (yellow line) and the Japanese yen (red line), January 1980=100.

As one can see, gold prices denominated in the greenback and the yen often move together. There were only two significant divergences in the relative performance of gold priced in the U.S. dollar versus gold prices in the yen. The first case occurred in the 1980s, when the yen strengthened against the greenback, leading to strong declines in yen-denominated gold prices. The second case started in mid-2014. In the second half of that year, gold priced in yen has outperformed its dollar cousin due to the strength of the greenback against the yen and the decline in Japanese real interest rates. However, in 2016 the U.S. dollar depreciated against the Japanese currency, which led to the underperformance of the yen-denominated gold prices. The reason may be the Fed being more-dovish-than-expected and the rising conviction that the Bank of Japan has been approaching the limits of monetary easing. Indeed, the introduction of negative interest rates in January and changes in the monetary policy framework in September have largely failed to weaken the yen, as investors judged that these actions implied that the BoJ had little scope to ease policy further. Such a belief diminished the perceived divergence in monetary policies between the Fed and the BoJ, which supported the gold market this year. Let’s analyze the chart below which plots gold prices against the balance sheets of the Fed and the BoJ, showing the divergence in the monetary pumping.

Chart 3: The price of gold (yellow line, right axis, P.M. London Fix), the Fed’s balance sheet (green line, left axis, in $ million) and the BoJ’s balance sheet (red line, left axis, in 100 ¥million), from January 2003 to August 2016.

As one can see, there is no clear correlation between gold prices and central banks’ total assets. However, the price of gold entered the bear market period at the end of 2012 when the BoJ adopted a more aggressive stance associated with Abenomics and the growth of its monetary base accelerated.

Looking forward, we expect that the divergence in monetary policy between the Fed and the BoJ will persist, supporting the U.S. dollar. The divergence has receded somewhat this year as the Fed has dialed back expectations for the pace of rising interest rates, however it may return to the spotlight in December when the Fed may hike interest rates, while the ECB and the BoJ would probably continue to loosen their monetary policies. Indeed, the BoJ left the possibility of more asset purchases and further interest rates cuts – at the press conference after its September meeting, Kuroda said:

“We won’t hesitate to adjust monetary policy with an eye on economic and price developments. “We will ease further when necessary. We can cut short-term rates, lower the long-term rate target, buy more assets or if conditions warrant, accelerate the pace of expansion in monetary base. There’s room to ease further with the three dimensions of quantity and quality of assets as well as interest rates.”

It goes without saying that a strong dovish statement from the BoJ could weaken the yen and strengthen the U.S. dollar, which would be negative for the price of gold. In a scenario of the broadening divergence in monetary policy between the major central banks, investing in gold priced in the yen (or the euro) would be a smarter choice than investing in gold priced in the U.S. dollar. Naturally, there is only one “gold” that can be purchased and the above simply means that those who hold the euro or yen and use it for purchasing gold, will likely benefit more (vs. the value of these currencies) than those, who hold the US dollars.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in